Anticipated arbitration reforms in Australia

The Australian International Arbitration Act 1974 (Cth) (Act) applies to all international arbitration proceedings in Australia. The Civil Law and Justice Legislation Amendment Bill 2017 (Bill) is an omnibus bill which proposes to make certain amendments to the Act (as well as other various Australian legislation).

The International Arbitration Act incorporates the United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration (Model Law) and, much like other Model Law jurisdictions, contains additional provisions supplementing the Model Law. The proposed amendments to the Act are another effort by Australia to improve and clarify the provisions of the Model Law by addressing issues which have arisen in jurisprudence.

The key proposed change will make it easier for foreign awards to be enforced in Australia. A number of other less significant amendments are also proposed.

Enforcement of foreign awards in Australia would be made easier

Australian courts have differed as to what an award creditor has to show in order to enforce an award through the Australian courts under section 8(1) of the Act. This is demonstrated by two cases:

• In Altain Khuder LLC v IMC Mining Inc & Anor (2011) 282 ALR 717 (Altain Khuder) the Victorian Court of Appeal held that for an award to be enforced, an award creditor may be required to establish that the award debtor is a party to the relevant arbitration agreement when the award debtor is not named as a party in the agreement itself.

The decision of Altain Khuder has had no shortage of critics. It has been said that it adds an extra evidential requirement on an award creditor which is not contemplated by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and within jurisprudence from other pro-arbitration jurisdictions such as Hong Kong, Singapore and England.

• In Dampskibsselskabet Norden AIS v Beach Building & Civil Group Pty Ltd (2012) 292 ALR 161 (DKS, affectionately also known as the "Damp Biscuits" case), the Federal Court of Australia did not follow Altain Khuder and instead held that the evidential burden on an award creditor prior to enforcement was limited to the production of the relevant arbitral agreement and the award.

Commentators have suggested that unlike Altain Khuder, the DKS approach is more closely aligned with the New York Convention and, for that reason, is the preferred position.

The Bill proposes that the Act will address this inconsistency in the case law by clarifying that a foreign arbitral award is binding between ‘the parties to the award,’ as opposed to the current formulation, which provides that an arbitral award is binding on the ‘parties to the arbitration agreement'. This proposed amendment is significant as it would effectively prevent a court from taking the approach adopted in Altain Khuder and would bring Australian law into line with that of other pro-arbitration jurisdictions.

(The effect of the amendment is simply to remove any additional evidential requirement which has been read into section 8(1) of the Act. The normal defences established by Article 5 of the New York Convention and incorporated into Australian law remain available to an award debtor.)

Other proposed amendments

1. Modernisation of powers of arbitrators to award costs

The Bill proposes that arbitrators be given greater flexibility in making costs awards. The Act currently refers to the power of arbitrators to tax or settle the amount of costs to be paid. This would be replaced by a more simplified provision to the effect that an arbitrator may determine the amount to be paid under an award, as well as in what manner and by whom.

2. ‘Competent court’ defined

A number of the sections of the Act allow a 'competent court' to take certain measures, including, for example:

• enforcing arbitral awards;
• recognizing and enforcing interim measures in support of arbitration; and
• providing court assistance in the taking of evidence in support of arbitration.

The Act does not currently define ‘competent court,’ creating uncertainty as to which courts have jurisdiction under the Act in these arbitration-related matters.

The Bill proposes that the Act expressly state that both the Federal Court of Australia and Australian State and Territory Supreme Courts are ‘competent courts’ for the purposes under the Act. This means that parties will no longer need to rely on the common law to establish whether a particular court is ‘competent’ to exercise jurisdiction in the matters listed above.

3. New confidentiality provisions

The UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (Transparency Rules) were designed to introduce measures that promote transparency in investor-state arbitration. The Transparency Rules apply to investor-state UNCITRAL arbitration proceedings if the treaty under which the arbitration is commenced was concluded after 1 April 2014. The Transparency Rules might also apply to arbitrations commenced prior to 1 April 2014 in circumstances where the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention) binds the parties.

The Bill seeks to clarify the application of certain provisions in the Act which concern confidentiality for arbitrations subject to the Transparency Rules.

Australia is not a currently a party to the Mauritius Convention, so the application of these proposed amendments would be limited. However, the amendments would prevent a conflict between the Act and the Transparency Rules in circumstances where Australia is the seat of an arbitration between non-Australian parties and the Transparency Rules would ordinarily apply.

Next steps

The Bill was introduced into Australia’s Senate on 22 March 2017. On 30 March 2017, the Australian Senate referred the Bill to its Legal and Constitutional Affairs Legislation Committee, for report by 10 May 2017. The Bill will then need to be approved by Australia’s Senate and House of Representatives, before it can become law.

Comment

The proposed amendments to the Act are to be welcomed as they seek to clarify uncertainties in Australia’s current arbitration landscape. The proposed amendments also bring Australia into line with a number of other jurisdictions solidifying Australia's reputation as an arbitration-friendly jurisdiction.

For further information, please contact Brenda Horrigan, Partner, Anne Hoffmann, Senior Associate, Mitchell Dearness, Solicitor and Colin Ballantine, Solicitor or your usual Herbert Smith Freehills contact.